Tokyo's Tobacco Tax: A Smoke Screen

December 04, 2002

By Brian Bremner For years, my Japanese friends have been mildly amused by the antismoking mania in the U.S. The idea of poor souls on a ciggy break having to huddle in front of their New York office towers in the dead of winter seems strangely foreign here. And New Yorkers forking over $7 for a pack of smokes because of all the tobacco taxes heaped on the habit? Not in Japan.

This has long been a puffer's paradise. Cigarette vending machines are everywhere -- train stations, shopping arcades, office buildings, you name it. The cost of a pack: $2. And smokers are everywhere, too. There's a smoking section in front of the hospital where my daughters were born. The lobby of my health club has one. Nothing like a couple of deep drags after a 30-minute session on the Stairmaster.

Don't get me wrong, this column isn't going to be a rant against smoking. I managed to kick the habit just a year ago -- after about, oh, 37 attempts. I'm glad I did, but on the other hand, I don't view smokers as weak, flawed, or moral reprobates. Nothing is more annoying than a sermon from an ex-smoker.

HOLLOW POSTURING. That said, Japan is grappling with a modest tax hike on cigarettes, and for an expatriate ex-smoker like me, whole debate is somewhat silly. As part of package of tax reforms expected to take place next year, Finance Minister Masajuro Shiokawa wants to increase the sin tax on smoking by about 30 cents per pack, which would generate $3.6 billion or so in extra revenues annually.

Shiokawa's rhetorical rationale, however, isn't as much economic as it is moralistic. He thinks forcing Japanese to part with more yen per pack will trump their tobacco cravings. Come on. If he and his ruling Liberal Democratic Party (LDP) members are serious about discouraging smoking, a 30-cent tax hike won't persuade too many folks to kick the habit.

Hate to be a cynic here, but in the smoking backrooms of LDP headquarters, I doubt that many party elders are really all that bent out of shape by the fact that Japan has one of the highest smoking rates in the industrialized world. The numbers have fallen steadily since their peak back in 1966, when about half of all adults indulged, compared with only about 30% now. But even today, about half of all Japanese men smoke.

LOST CAUSE? Those numbers, by the way, come from Japan Tobacco's annual survey on smoking. JT, as it's known, is the country's own tobacco giant -- the world's third-biggest cigarette maker. Partly owned by Japan's Finance Ministry, it has friends in the LDP. Now, JT has launched a nationwide petition campaign against any new levies on tobacco. Some 6 million Japanese have signed.

Company President Katsuhiko Honda recently pointed out to the business newspaper Nihon Keizai that Tokyo already collects about $18 billion a year in tobacco-related taxes. "If the government raises the tax, it will lead to a fall, rather than a rise, in revenue because sales will decline," he says. So might JT's stock, which would mean less cash for the government as it proceeds with plans to sell off its remaining equity stake.

Honda likely won't prevail. The hike being envisioned is so small that it will hardly matter to most smokers. In fact, if the boys in the LDP were serious about discouraging smoking, they ought to consult a study released in September by an affiliate of the Health, Labor, & Welfare Ministry. According to those figures, the per-pack cost would need to be pushed to around $2.50 before seeing any significant decrease in the smoking population. At that level, the study projects that 16% of nicotine-dependent Japanese would throw in the towel.

If you really want results, hike the cost of a pack to New York levels, say, $8 or so. Then, some 63% of Japan's 28 million or so estimated smokers would turn over a new leaf.

THE REAL CHOICE. O.K., but wouldn't tax revenues fall off the cliff, as Honda and his allies contend. Not at all, according to the Health Ministry. You'd still have some 11 million smokers with the means or will to keep smoking, even at $8 a pack. While the smoking population would fall 61%, the tax increase would more than make up for the decline in numbers.

The government could even end up with as much as $8 billion more a year in tobacco-related tax revenues than the $18 billion it now hauls in, the study concludes. Of course, none of this takes into consideration the $6.5 billion a year in expected savings in medical costs or the reduction in premature deaths, thanks to fewer smokers.

I quit smoking because it's just too risky a habit. Ultimately, however, it's a matter of personal choice. If the LDP thinks the same way, it should warn consumers of smoking's downsides and then let things carry on as before. But if Prime Minister Junichiro Koizumi's government really believes it's time to reduce Japan's smoking rate to more moderate levels, such a modest tax hike isn't going to cut it. Short of a truly radical tax hike, the pious talk about weaning Japanese from the habit is a bunch of rubbish. Bremner, Tokyo bureau chief for BusinessWeek, offers his views every week in Eye on Japan, only for BusinessWeek Online